Tax Year End Tips 2019

Tax year end planning 2019 – top 10 checklist

Source: Standard Life Technical:

Plan your tax allowances and reliefs for tax year end 2019 now

With tax year end just around the corner, it’s time to check your clients are making the most of their tax reliefs and allowances to save for a brighter future. There’s a lot to think about.

We’ve created a checklist of our top 10 TYE planning opportunities to explore with your clients and their families, together with the key information you need to make these a reality. 

1. Pension saving: maximise tax relief

  • Additional and higher rate taxpayers may wish to contribute an amount to maximise tax relief at 40%, 45% or even 60% (where personal allowance is reinstated) while they have the opportunity.
  • Those with sufficient earnings can use carry forward to make contributions in excess of the current annual allowance. Remember this is the last chance to benefit from the potential double annual allowance for 2015/16 before it drops off the carry forward radar: it’s a case of “use it don’t lose it” before tax year end.
  • And it’s not just about individuals! For couples, consider maximising tax relief at higher rates for both, before paying contributions that will only secure basic rate relief. Many clients won’t know they can top-up pensions for their partners – and not just by £3,600, but up to their partner’s earnings. And their partner can get tax relief on top.

Key information

  • Total taxable income.
  • Relevant UK Earnings – e.g. earnings from employment or trade only.
  • Pension annual allowance available from current year and previous 3 years (especially 2015/16).

2. High earners: making a pension contribution before the TYE could  increase their annual allowance

  • Some high income clients will face a cut in the amount of tax-efficient pension saving this tax year. The standard £40,000 AA is reduced by £1 for every £2 of ‘income’ clients have over £150,000 in a tax year, until their allowance drops to £10,000.
  • But it’s possible that some of these clients may be able to reinstate their full £40,000 allowance by making use of carry forward. The tapering of the annual allowance won’t normally apply if income less personal contributions is £110,000 or less. A large personal contribution using unused allowance from the previous 3 tax years can bring income below £110,000 and restore the full £40,000 allowance for 2018/19. And some of it may attract 60% tax relief too.
  • Remember that when working out how much carry forward is available, high earners may also have had a reduced annual allowance from 2016/17 or 2017/18.

Key information

  • Adjusted Income for this year (broadly total income plus employer contributions).
  • Threshold Income for this year (broadly total income less individual contributions).
  • Any unused annual allowance available from current year and previous 3 years. 

3. Clients approaching retirement: boost pension saving now before triggering the MPAA

Anyone looking to take advantage of income flexibility for the first time may want to consider boosting their pension pot before April, potentially sweeping up the full £40,000 AA from this year, plus any unused allowance carried forward from the last three years.

Triggering the Money Purchase Annual Allowance (MPAA) will mean the opportunity to continue funding into DC pensions will be restricted to just £4,000 a year – with no carry forward.

So it might be worth considering other ways of meeting income needs that don’t restrict future pension saving. Could other non-pension savings be used? And remember, clients who need money from their pension can avoid the MPAA and retain the full £40,000 allowance if they only take their tax free cash.

Key information

  • ‘Income’ required.
  • Non-pensions savings that could support ‘income’ required.

4. Employees: sacrifice bonus for an employer pension contribution

We’re approaching ‘bonus season’ for many companies. ‘Exchanging’ a bonus for an employer pension contribution before the tax year end can bring several benefits.

The employer and employee NI savings made could be used to boost pension funding, giving more in the pension pot for every £1 lost from take-home pay.

Key information

  • Size of bonus.
  • Pension annual allowance available from current year and previous 3 years.
  • Does employer allow bonus sacrifice?
  • Employer willingness to share NI savings.

5. Business owners: take profits as pension contributions

  • For many directors, taking significant profits as pension contributions could be the most efficient way of paying themselves and cutting their overall tax bill.
  • Of course, if the director is over 55 they now have full unrestricted access to their pension savings (although this might come at the price of a lower annual allowance going forward – see 3 above).
  • There’s no NI payable on either dividends or pension contributions. Dividends are paid from profits after corporation tax and will also be taxable in the director’s hands. By making an employer pension contribution, tax and NI savings can boost a director’s pension fund.
  • Employer contributions made in the current financial year will get relief at 19%, but the rate is set to drop to 17% in 2020. So those business owners who cannot fund a pension every year may wish to pay sooner rather than later, if they have the profits and the cash available.

Key information

  • Company accounting period.
  • Company pre-tax profit.
  • Pension annual allowance available from current year and previous 3 years. 

6. Use ISA allowances

ISAs offer savers valuable protection from income tax and CGT and, for those who hold all their savings in this wrapper, it’s possible to avoid the chore of completing self-assessment returns.

The ISA allowance is given on a use it or lose it basis, and the period leading to the tax year end, often referred to as ‘ISA season’, is the last chance to top up. Savings delayed until after 6 April 2019 will count against next year’s allowance.

Key information

  • Remaining annual ISA allowance.

7. Recover personal allowances and child benefit

  • Pension contributions reduce an individual’s taxable income. In turn, this can have a positive effect on both the personal allowance and child benefit for higher earners resulting in a lower tax bill.
  • An individual pension contribution that that reduces income to below £100,000 will restore your client’s full tax free personal allowance. The effective rate of tax relief on the contribution could be as much as 60%.
  • Child Benefit is clawed back by a tax charge if the highest earning individual in the household has income of more than £50,000, and is cancelled altogether once their income exceeds £60,000. A pension contribution will reduce income and reverse the tax charge, wiping it out altogether once income falls below £50,000.

Key information

  • Adjusted net income (broadly total income less individual pension contributions).
  • Relevant UK earnings. 
  • Pension annual allowance available from current year and previous 3 years.

8. Investments: take profits using CGT annual allowances

  • Clients looking to supplement their income tax-efficiently could withdraw funds from an investment portfolio and keep the gains within their annual exemption.
  • Even if cash isn’t needed, taking profits within the £11,700 CGT allowance and re-investing the proceeds means there will be less tax to pay when clients ultimately need to access these funds to meet spending plans.
  • Proceeds cannot be re-invested in the same mutual funds for at least 30 days, otherwise the expected ‘gain’ will not materialise. But they could be re-invested in a similar fund or through their pension or ISA. Alternatively the proceeds could be immediately re-invested in the same investments, but in the name of the client’s partner.
  • If there is tax to pay on gains at the higher 20% rate, a pension contribution could be enough to reduce this rate to the basic rate of 10%.

Key information

  • Sale proceeds and cost pool for mutual funds/shares.
  • Gains/losses on other assets sold  – e.g. second homes.
  • Losses carried forward from previous years.

9. Bonds: cash in bonds to use up PA/starting rate band/PSA and basic rate band

  • If your client has any unused allowances that can be used against savings income, such as personal allowance, starting rate band or the personal savings allowance, now could be an ideal opportunity to cash in offshore bonds, as gains can be offset against all of these.
  • If not needed, proceeds can be re-invested into another investment, effectively re-basing the ‘cost’ and reducing future taxable gains.
  • For those that have no other income at all in a tax year, gains of up to £17,850 can be taken tax free.
  • If your client does not have any of these allowances available, but their partner (or even an adult child) does, then bonds or bond segments can be assigned to them so that they can benefit from tax free gains. Remember, the assignment of a bond in this way is not a taxable event.

Key information

  • Details of all non-savings and savings income.
  • Investment gains on each policy segment.

10. No bonus? No problem: recycle savings into a more efficient tax wrapper

  • As mentioned in 8 and 9 above, using tax allowances is a great way to harvest profits tax free. By re-investing this ‘tax free’ growth, there will be less tax to pay on final encashment than might otherwise have been the case. That is to say, when your clients actually need to spend their savings, tax will be less of burden.
  • But there may be a better option to re-investing these interim capital withdrawals in the same tax wrapper. For example, they could be used to fund their pension where further tax relief can be claimed, investments can continue to grow tax free and funds can be protected from IHT.
  • Similarly, capital taken could be used as part of this year’s ISA subscription. Although ISAs don’t attract the tax relief or IHT advantage a pension does, fund growth will still be protected from tax.
  • Which leads nicely on to one final consideration; for clients over (or approaching) 55 – should ISA savings be recycled into their pension to benefit from tax relief and IHT protection?

Key information

  • Unused personal allowances for extracting investment profits.
  • Remaining annual ISA allowance.
  • Pension annual allowance available from current year and previous 3 years and relevant UK earnings.


Effective tax planning is a year round job. It’s only at the end of the tax year that you have all the pieces to complete the planning jigsaw, but there are steps you can take now to get ahead of the game and give yourself time to put plans in place. And with less than 8 weeks until 6 April, there’s no time like the present to get started.

Source and Credits – Standard Life Technical

As Independent Financial Advisers we can help and advise you on the tips listed above. Just give us a call on 0345 013 6525 to discuss.

Does it make sense to gift surplus pension income?

Pension freedom changed the dynamics of estate planning, with many individuals now gifting or spending assets which are part of the estate before touching their pension pot which remains IHT free. So does it make sense to gift surplus pension income? Gifting surplus pension income using the ‘normal expenditure out of income’ IHT exemption might seem a pointless exercise. After all, why give away something which isn’t in your estate in the first place?

But if pension withdrawals can be taken tax free (or at least at a lower tax rate than the beneficiary may pay on any inherited pension) there may still be a strong motivation to do so as part of an effective estate planning strategy.

There is no statutory limit on what can be given away and successful claims on regular gifts are immediately outside the estate. Combined with the flexibility offered by pension freedom, this can be remarkably efficient.

Estate planning with pension income

Many clients don’t start thinking about estate planning until after they have ceased working. The first priority must, of course, be ensuring their own income security in old age. But once this is done, should thoughts turn to gifting? Even with a fall in income in retirement, some clients may still have more coming in than they need.

Fixed incomes

Income from annuities or DB pensions can’t be adjusted, so any excess may end up simply being accumulated in the estate and could be subject to IHT on death. Even if it’s subsequently given away as a lump sum it would take seven years to be outside the estate.

However, if that surplus income is given away on a regular basis and the exemption claimed it is immediately outside the estate and offers an opportunity to pass on pension wealth tax efficiently.

This is perhaps an easier decision to make for these clients as the question is simply about what to do with their surplus income, and not whether to take more income from a flexible pension, unless they also have one of these.

Flexible incomes

Those in drawdown have greater freedom to pass on their accumulated pension savings. Any unused funds on death are available as either a lump sum or as inherited drawdown.

The remaining pension funds are typically free of IHT, so there’s unlikely to be an IHT advantage in taking more drawdown income than is needed. But there could be other motivations for doing so.

On a practical level, beneficiaries may need the money now rather than after the client has died. Or the client may simply wish to see their loved ones enjoy the money.

There could also be an income tax benefit. If the client dies after 75, any undrawn tax free cash entitlement will be lost. So what could have been taken tax free before their death would become taxable in the beneficiary’s hands.

However, if surplus income can be generated by making withdrawals which are tax free (or at a lower tax rate than the beneficiary is likely to pay) then there may be good reason to do so.

This takes us to a critical question.
What counts as  ‘income’ from a flexible pension? Flexi-access drawdown, (where there are no limits on what can be taken and withdrawals can be taken as combination of tax free cash and taxable income), gives significant scope to take withdrawals tax efficiently.

When it comes to gifting those withdrawals, the IHT rules also help here. The ‘normal expenditure out of income’ exemption doesn’t use the income definition used for income tax purposes. As income is not defined in the IHT Act, it follows normal accountancy practice to determine what is income.

HMRC have confirmed to us that regular withdrawals from flexible pensions, irrespective of the levels withdrawn and whether taken as tax free cash or taxable income, always count as income for the purpose of the IHT exemption. This creates an opportunity for at least 25% of the pension fund to be taken and gifted both income tax and IHT free.

Other conditions

But it is important to remember that the gifts still have to satisfy two additional conditions.

Firstly, the gifts have to be part of normal expenditure. Taking the full 25% tax free cash entitlement and giving it away is a one-off gift. The exemption clearly will not apply and the gift will be a potentially exempt transfer. There has to be an established pattern of gifting. Spreading the gifting of tax free cash over a number of years using a phasing strategy, so that all the tax free cash is taken by the client’s 75th birthday, is a better option.

The second condition is that the gifts should leave the client with sufficient income to maintain their usual standard of living. Any pension withdrawals needed to maintain this standard will not be ‘surplus’. Similarly, the amount of the gift which qualifies for the exemption may be limited if the client has to draw on other capital assets, such ISAs, bonds or OEICs, to supplement their lifestyle.

There is an obvious estate planning advantage to making gifts of assets which form part of the estate before giving away pension funds which do not. So capital gifting may take precedence over income gifts unless other savings have already been exhausted.

Record keeping

Last but not least, it is good practice for anyone who intends using the exemption to keep not only details of the gifts made but also their income and expenditure. This can be captured on the IHT403 form. Ultimately it will be down to the executors to make the claim. And it can be extremely difficult to collate this information post death.

Source: Standard Life technical consulting –
Information correct at 11/12/18